Will Maryland Medicaid launch a payment trend?
Will Maryland Medicaid launch a payment trend?
Other states may adopt new rate methodology
Maryland is shaping up to be a trend setter in a hotly debated new Medicaid managed care program that promises to adjust capitation payments fairly on the basis of severity of illness. If the approach succeeds in Maryland, physicians in 13 other Medicaid managed care states could well end up judging for themselves how well the system works.
Meanwhile, critics in the Maryland medical community aren’t quite ready to rubber-stamp the idea. Some worry that despite the stated aim of making payments more equitable, Maryland physicians and hospitals might not reap the benefits of risk adjustment.
Nevertheless, earlier this year, the Health Care Financing Administration in Baltimore gave Maryland the go-ahead to phase in Ambulatory Care Groups (ACGs), the key component in setting rates based on severity. The program, part of a $1.2 billion-a-year managed care effort, is scheduled to kick off June 1.
Developed at The Johns Hopkins School of Public Health in Baltimore, ACGs are supposed to adjust payments to managed care organizations (MCOs) based on patient demographics such as age and sex, as well as on illness categories determined by ICD-9-CM codes.1 Under the formula, MCOs would get a special capitation amount from the state for covering enrollees suffering from certain high-cost illnesses such as cancer and heart disease. (ACGs are not related to ambulatory patient groups [APGs], a prospective payment system.)
Most Medicaid managed care programs pay providers a negotiated capitation rate that does not adjust for high-risk patients. Mean while, health plans have known for years that physicians at risk typically get shortchanged on payments when they continually treat patients who are sicker than others in their case mix.
In Maryland, providers are being guardedly optimistic about ACGs. Physicians in communities that have tested ACGs complain that they are difficult to understand. And many believe the formula may not risk-adjust payments fairly at all. Instead, ACGs could end up penalizing almost everyone except insurers meaning family physicians, specialists, and the relatively healthy, who will have to compete with the chronically ill to get access to primary care. Here’s why:
• Whereas at-risk providers currently are rewarded for seeing relatively healthy patients, under ACGs some healthier patients may have difficulty seeing their family physicians. "In some ways it reverses capitation incentives," says Norman S. Smith, PhD, senior health economist with CSC Healthcare Systems in Malden, MA, a company that licenses the key ACG computer software.
• In Maryland, HMOs will have no mandate to pass on the higher risk-adjusted payments to providers. Other insurers may follow suit.
• Primary care physicians could see lower payments. The higher rates that will go to cover high-cost cases, including specialist care, will probably come out of primary care, says Bobbi Seabolt, executive director of the American Academy of Pediatrics’ Maryland chapter in Baltimore. As a result, specialist referrals could diminish.
In fact, ACGs are expected to save Maryland Medicaid $56 million in its first year and cut payments to HMOs to 90% of the old fee-for-service rates compared with 94% under the present managed care program, according to state officials.
ACGs may be too complex
• Some practices won’t see any real change in their payments. "They’re telling me we’re getting paid more, but I don’t know how to calculate it," complains Charlotte A. Cote, CMPE, practice manager at Pittsfield (NH) Medical Center, a three-member primary care practice. Cote is referring to Healthsource, a Hooksett, NH, HMO that uses ACGs to set rates in New Hampshire. "We are getting a humongous volume of data each month, however," says Cote.
Healthsource acknowledges receiving complaints from providers but insists it does everything possible to explain the data completely, according to Dogu Chelebi, MD, MPH, Healthsource’s corporate director for health services research and development.
So why are ACGs so highly touted by their defenders? "It’s a lot more effective than the current method of using only age and sex factors in adjusting for risk," observes Janna Johnson, vice president of contracted operations and managed care systems at HealthPartners, a large physician-hospital system in Minneapolis. That’s because:
• ACGs take into account severity of illness, as well as patient age and sex, in determining rates something missing from traditional HMO community rate-setting formulas. (For a comparison of how payments under ACGs differ from current methodologies, see chart on p. 76.)
• They incorporate two years of a practice’s claims data and a breakdown by diagnosis codes to assess risk, which provides a better basis for setting rates, proponents argue.
• They create mutually exclusive enrollee groups that reflect different levels of service intensity and set PMPM rates at potentially equitable levels instead of one community-rated level.
• They also adjust physician incomes without adding or subtracting total capitation dollars. This way, providers will have proper incentives to provide adequate levels of care, says Smith of CSC.
Reference
1. Fowles J, Weiner J, Knutson D, et al. Taking health status into account when setting capitation rates. JAMA 1996; 276:1316-1321.
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